Political Capital: Corporate Connections and Stock Investments in the U.S. Congress, 2004-2008

Quarterly Journal of Political Science (2014, Forthcoming)

Formerly: MIT Political Science Department Research Paper No. 2012-26

43 Pages Posted: 2 Dec 2011 Last revised: 29 Jan 2014

Andrew C. Eggers

University of Oxford

Jens Hainmueller

Stanford University - Department of Political Science; Stanford Graduate School of Business; Stanford Immigration Policy Lab

Date Written: January 2014

Abstract

Recent research suggests that, public perceptions notwithstanding, members of Congress are rather mediocre investors. Why do the consummate political insiders fail to profit as investors? We consider various explanations that pertain to members' political relationships to public firms. We show that members of Congress invest disproportionately in local firms and campaign contributors, which suggests that overall underperformance cannot be explained by the absence of political considerations in members' portfolio decisions. These connected investments (and particularly local investments) generally outperform members' other investments, which suggests that poor performance is not explained by an excessive political skew in members' portfolios. It appears that members of Congress earn poor investing returns primarily because their non-connected investments perform poorly, perhaps due to the usual failings of individual investors; a combination of political and financial considerations may explain why they do not make more extensive use of their political advantages as investors.

Keywords: political exchange, Congress, legislatures, political economy

JEL Classification: G10, G11

Suggested Citation

Eggers, Andrew C. and Hainmueller, Jens, Political Capital: Corporate Connections and Stock Investments in the U.S. Congress, 2004-2008 (January 2014). Quarterly Journal of Political Science (2014, Forthcoming) ; Formerly: MIT Political Science Department Research Paper No. 2012-26. Available at SSRN: https://ssrn.com/abstract=1967628 or http://dx.doi.org/10.2139/ssrn.1967628

Andrew C. Eggers

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Jens Hainmueller (Contact Author)

Stanford University - Department of Political Science ( email )

Stanford, CA 94305
United States

HOME PAGE: http://www.stanford.edu/~jhain/

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Stanford Immigration Policy Lab

30 Alta Road
Stanford, CA 94305
United States

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